Multifamily Market Still on the Rise

Mayor Jerry Brown's 10K Initiative--a mandate to bring 10,000 new residents to downtown Oakland--is driving growth in the East Bay's largest city. The region has averaged almost $122 million a month more in residential permits than San Jose and San Francisco the past two years.

By Brian Higgins

When the dot-com collapse and the events surrounding Sept. 11 threw the San Francisco Bay Area's off-the-charts economy into a tailspin early in the millennium, the East Bay merely ducked.

Ignacio De La Fuente

According to the Economic Development Alliance for Business, a consortium of East Bay civic and business leaders, the East Bay has suffered just 10 percent of the 550,000 job losses incurred in the corridor between San Francisco and San Jose in the past four years.

And East Bay construction, which is led by Oakland, is continuing at a considerably more frenzied pace than its cross-bay neighbors.

"From the standpoint of the East Bay, construction has really been the savior-and homebuilding has been particularly important," said EDAB Executive Director Bruce Kern. "It's really helped cushion the regional economy and prevent the free fall that other San Francisco Bay cities have experienced. Over half of the job gains that the East Bay has experienced over the past year were attributable to the construction and financial services industries."

According to EDAB's monthly report for March, the East Bay has averaged almost $122 million a month more in residential permits than San Jose (Santa Clara County) and about $109 million more than San Francisco (County) the past two years.

"I think that residential building shows evidence of a supply and demand imbalance in the East Bay," said Tony Bosowski, regional president of the Olson Co. of Seal Beach, which is building the City Walk residential building in downtown Oakland. "There's been a huge demand for housing near jobs, but there hasn't been the supply within the urban cores. City Walk's 251 units aren't going to satisfy the demand."

Oakland, which for decades was largely stagnant on the development front, has been the hub of economic vitality in the East Bay's residential construction industry over the past year. And Mayor Jerry Brown's 10K Initiative -a mandate to bring 10,000 new residents downtown - is the reason.

Brown, once known as Gov. Moonbeam for his ultraliberal policies while running California, has become Mayor Crossbeam in Oakland.

Oakland officials have set 6,000 new units as the magic number to lure the 10,000 new residents for whom the initiative is named, and those making their living in the design and construction industries probably need not worry once Brown leaves office in 2006.

City Council President Ignacio De La Fuente, the decisive early frontrunner in the race to succeed Brown when his second term expires next year, has vowed to fulfill Brown's 10K Initiative, and then some.

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"That means, given the density of people with disposable income, that we can go after our next area, which is retail," said De La Fuente, the driving force behind the 2003 opening of the Fruitvale BART Transit Village and the accompanying boon in retail along Oakland's seamy International Boulevard.

Others aren't so sure that a jump in retail construction is that predictable.

"I think Jerry Brown is right in what he's trying to do," said Matt Kircher, managing partner of Terranomics, the retail division of BT Commercial, a real estate brokerage firm with an office in Oakland. "But I think retail in Oakland is kind of hanging on the sidelines. You've got loft people, but not enough of them. There are retailers that would like to come there, but you can't find the land in proximity to the groups you need to reach."

Kircher, whose company recently opened big-box stores in Oakland (Wal-Mart) and Albany (Target), said that Brown's target of 10,000 new inner-city residents will only be enough to mildly interest significant retailers. And even at that, issues abound.

"All cities want retail before housing," Kircher said. "Five years ago, that wasn't true. The 10K people are young and really don't have the type of discretionary income [to attract retail]. And crime is a big issue."

But the 10K initiative is also paving the way for projects that, at least in theory, attack the crime problem where it lives. San Francisco-based Cahill Contractors, with the design team of Oakland-based architects Pyatok, Kodama Diseno and Y.H. Lee Associates, are overhauling and expanding the 351-unit Coliseum Gardens low- income housing units near the Oakland Coliseum.

And within the 10K parameters, the San Francisco Business Journal reported that pre-entitlement buying is off the charts in downtown Oakland, where one condo building-The Essex-is preselling at $550 a sq. ft.

Oakland's relationship with neighboring Emeryville is of the chicken-egg variety in that it's tough to tell which city is influencing the other where development is concerned. But tiny Emeryville, wholly undeveloped 15 years ago despite being located just 5 mi. from downtown Oakland, continues to race headlong toward claiming the title of Bay Area's densest city.

The latest expansion by MacFarlane Partners of San Francisco and Milpitas-based general contractor Devcon Construction of the Bay Street Emeryville residential/retail complex-with 95 condos in building D and 284 apartments in Building E-will add customers to a 3-year-old mini-mall that includes such retailers as Barnes & Noble, Banana Republic, The Gap, Old Navy and Pottery Barn. The apartments, which will begin moving in tenants later this year, expand the complex's residential buildings to five.

"Emeryville, like a lot of cities, is trying to diversity its tax base," said MacFarlane principal Jon Knorpp of the tiny municipality's heavy reliance on combined residential/retail projects. "A lot of cities can't do that type of thing. The Bay Street project is just not something you plop down on any corner."

Knorpp, whose company is also building part of the 600-unit Uptown Project (in partnership with Signature Properties) within the 10K parameters, cautioned that the upswing in East Bay Area construction doesn't really mean lower prices for consumers.

"The disconcerting thing is that construction costs--like concrete, steel and wood-are still out of control," he added. "People keep asking me if construction costs are coming down in the next year as demand in China and Iraq goes down. But what's going to follow on its heels is a lot of labor contracts that are up for renewal."

One intriguing aspect of the turnaround in the East Bay is the unorthodox nature of some of the projects that are fueling the comeback. Alameda's West End, a virtual ghost town since the Navy left in 1997, is the home of developer Catellus' Bayport Alameda, a Warmington Homes project of 485 upscale homes built just outside the entrance to the former Alameda Naval Air Station.

Located directly across the street from what just a year ago was a crime-riddled housing project, the 75 percent of Bayport homes that are selling at market will start at $750,000.

Conversely, the Sacramento office of Sundt Construction Inc. has $77.4 million in building contracts for the Fairway Ranch project in suburban Dublin, which will offer all but 92 of its 626 units to low- and moderate-income tenants.

Fairway Ranch will open next year and feature a 341,000-sq.-ft., 304-unit apartment building and four-story parking garage, plus a 334,000-sq.-ft., 322-unit senior apartment building with underground parking.

The development's owners, KL Acquisitions Management LLC and Charter Properties of Columbus, Ohio, worked closely with the city of Dublin on the Fairway Ranch project. The lead architect is Van Tilburg, Banvard & Soderbergh of Santa Monica.